This is a world class experience, all at an affordable price.

We are not a low cost carrier and we do not intend to be one. We have broken the shackles of conservative socialism. The growing middle classes want the kind of standard of living you enjoy in the West. So what I am selling is lifestyle. Vijay Mallya

KINGFISHER AIRLINES is a major airline based in Mumbai, India. It is Indias fifth largest passenger airline that primaril y provides national and international, short and long haul, high frequency, medium to high fare service. Kingfisher Airlines was established in 2003. It is owned by the Bengaluru based United Breweries Group. The airline started commercial operations in 9 May 2005 with a fleet of four n ew Airbus A320 200s operating a flight from Mumbai to Delhi. It started its international opera tions on 3 September 2008 by connecting Bengaluru with London.

Indian Airline Industry Air India was founded by J. R. D. Tata in July 1932 as Tata Airlines, a division of Tata Sons Ltd which became the first airline of India and was later taken over by Government of India. At the t ime of Indias independence from the British in 1947, several small airlines operated in the count ry. Soon, however, in 1953, the government of India decided to guide the orderly growth and ev olution of the industry by creating two state owned national carriers Air India (for international travel) and Indian Airlines (for domestic travel). Air India was found ed by J. R. D. Tata in July 1932 as Tata Airlines, a division of Tata Sons Ltd (Exhibit 1) which b ecame the first airline of India and was later taken over by Government of India. Existing carrier s (many of which were making losses) were folded into these airlines. In a country of Indias size and diverse topological features, air travel was expected to be an important mode of travel. Air I ndia and Indian Airlines retained a monopoly over civil aviation in India till 1992. During this ti me they grew steadily but slowly. Air travel was patronised by the government, business, and ric h individuals and otherwise seen as a luxury, with the masses travelling by train or bus. The dere gulation of the Indian economy that started in the mid 1980s, and proceeded more aggressively after the New Economic Policy in 1991, led to calls for opening up of the airline sector. The gov ernment responded by first allowing the operation of Air Taxi services, and, in 1994, the opera tion of scheduled air services.

The new entrants started small with a few leased aircraft apiece, but charted different strategies. Damania positioned itself as a luxury airline with on board entertainment such as fashion shows . EastWest tried to grow aggressively and had the most ambitious fleet expansion strategy. Jet est ablished a reputation for punctuality and good service, and rapidly became the preferred airline o f the business sector. With its base in Lucknow, Sahara offered excellent connectivity to a part of the country that was historically under served. Modiluft sought to exploit a technical tie up wi th Lufthansa by projecting itself as a safe and reliable airline. Quite a lot of airlines became non functional to financial pressures much before entering millennium century (Exhibit 2). The stea dy growth of the Indian economy after liberalisation at a compounded annual growth rate exceed ing 6% increased the size of the economy, and hence demands for both business and leisure trave l. The emergence of a new Indian middle class was a well documented and internationally reco gnised phenomenon. Besides, the number of air travellers and per capita use of airline services in China were about eight times that of India. Sensing opportunity, a new phase of development of the Indian airline industry kicked off in 2003 with the entry of new players into the airline indust ry. In spite of the fact that several costs of operating an airline were fixed irrespective of busines s model (one estimate put the proportion as high as 80%), most of the new entrants chose to use l ow fares as their main competitive weapon and hoped to create low cost operations to make the se low fares viable. Currently there are close to 140 million air travellers in India with around 98 million as repeat travellers. The air traffic passenger in India is expected to grow at 18% per an num despite of the fact that airlines are bleeding and running out of cash (Exhibit 3).

Kingfisher Airlines Kingfisher Airlines started by flamboyant beer baron Vijay Mallya in May 2005 shared the nam e of Indias leading beer brand. Though originally conceived and announced as a value carrier, Kingfisher rapidly morphed into a full service airline more in keeping with Mallyas style and went head on at Jet Airways. By Septe mber 2007, Kingfisher had 34 aircraft in its fleet (4 A-319, 12 A-320, 6 A-321, 12 ATR72) and served 34 destinations. The airline had 51 A320 family aircraft on order for delivery by 2014, 35 ATR aircraft on order for delivery between 2006 and 2010, and 50 wide-bodied aircraft (including the A380) on order for delivery between 2008 and 2018 for a planned international expansion (Exhibit 4).

Timeline 2005: Kingfisher Airlines began its operations on 9th May 2005 with its inaugural flig ht being from Mumbai to Delhi. Who at that point of time would predict that 7 years down the li ne, this shinning A320 would be the only flight operative out of over 200 other routes? Indian Airlines was nowhere close to be quoted as a class a part carrier so only Jet Airways and Sahara were dominant player

s in the Indian aviation industry. Kingfishers income for year ending on 30th June 2006 was IN R 13.5 Billion but this amount couldnt over shadow losses amounting to INR 3.4 Billion (Exhib it 5). 2006: Kingfisher Airlines was soon becoming an airline synonym with five star air travel and wa s becoming famous among business travellers. In December 2006 Kingfisher announced that it w ould provide live in flight entertainment which was first in its class by partnering with DTH pio neer Dish TV India Limited (Exhibit 6). Also the airlines went in some serious talks with Air De ccan which was supposedly working on a totally different and virtually an opposite business mod el providing extremely low fare based services. The income for period ending 30th June 2007 inc reased to INR 4.1 Billion but losses also accumulated to INR 4.19 Billion (Exhibit 7). 2007: Things were pretty much on right track and were almost going as per plans. Kingfisher had carried 17.5 Million passengers with a fleet of 41 aircrafts and a schedule of 255 flights. Ironical ly the situation today is such that Kingfisher is fighting to even fly mere 10% of those flights. Fin ally by the year end on December 19th 2007 Kingfisher Airlines acquired entire 46% of Deccan Aviation in Air Deccan (Exhibit 8). The period ending 31st March 2008 generated gross income of INR 15.4 Billion and losses dramatically were reduced to INR 1.8 Billion but this does not inc lude the aftermath of merger of Deccan (Exhibit 9). Since it was a streamlined and well planned year by Kingfisher, this year proved to be the best year right from inception till today. 2008: Kingfisher Airlines finally became the larger passenger airliner of worlds second most po pulous nation. Now Kingfisher was carrying 10.9 Million passengers annually with a fleet of 77 aircrafts operating 412 domestic flights daily. Also this year was quite historic was Kingfisher Ai rlines as it finally got permit to operate on international routes and on September 2008 Kingfishe r flew for the first time overseas from Bangalore to London. Kingfisher was no offering 3 classes of travel to passengers: Kingfisher First: Premium Business Class which was truly best in class, Kingfisher Class: Premium Economy or the basic economy of flagship carrier Kingfisher and Ki ngfisher Red: Low fare basic class or in other words the new name of Air Deccan. Financial state ments for year ending March 31st 2009 were actually supposed to be consolidated statements of both Kingfisher Airlines and Air Deccan hence now the income increased many folds to INR 55 Billion but so did the losses which increased to INR 16 Billion

2009: Kingfisher Airlines continued its run of the being the nations largest passenger carrier an d was having a healthy market share of 22.9% with 11 Million passengers flying with Kingfisher in last fiscal year. The fleet although got reduced to 68 aircrafts from 77 aircrafts and domestic f lights per year got reduced to 366 but international operations increased significantly to 12 flight

s daily. During the year Kingfisher won numerous accolades from agencies around the globe and continued being rated as Indias only Five Star Airline by Skytrax for three years in a row. It had been 4 years since birth of Kingfisher Airlines and shareholders were still waiting to receive first dividend from the company but company continued its run of losses and reported a marginally i ncreased losses of INR 16.4 Billion and gross income shrunk to INR 52.7 Billion for year ending March 31st 2010 (Exhibit 10). 2010: The dark clouds over Kingfisher Airlines were getting darker and dense with no ray of su nshine. Jet Airways (Undoubtedly a much stable and sustainable carrier but also badly affected fi nancially due to its acquisition of Sahara Airways) surpassed Kingfisher Airlines to become coun trys largest passenger airliner as it reported a market share of 25.5% whereas for Kingfisher it ca me down to 19.8% down by almost 3% from last year. There was one player in the industry whic h was finally getting noticed IndiGo as it reported a good 90% seats being filled and was gaini ng market share rapidly. Kingfishers domestic daily operations were same 366 flights daily but i ts international operations increased to 28 flights daily. Despite of the increase in flights, Kingfis her failed to capture market unlike its competitors and this should have been considered as a red flag by the company which unfortunately went unnoticed by the company. The airline reported a n increased gross income of INR 64.9 Billion and reduced losses of INR 10.2 Billion for the year ending 31st March 2011 (Exhibit 11). 2011: Kingfisher Airlines for the very first time declared in year 2011 that it is having some serio us cash flow problems. It simply blamed the same to rising fuel costs. Now the thing that needs t o be noticed is that when Kingfisher was not paying its dues to oil companies then how the fuel c osts would hit its cash flows so deeply? Dozens of pilots left Kingfisher for rival airlines during 2011. Creditors warned the firm that if it would fail to raise almost USD 159 Million in equity th en they will not be able to restructure its debt. But Kingfishers top brass believed that they woul d continue being the way they have till now but the problems were bound to get really out of han ds. The income for year ending 31st December 2011 stood at approx. INR 13.4 Billion which wa s lowest since 2007 and the losses increased sharply to INR 4.4 Billion ( Exhibit 12: Both incom e and losses are for just one quarter as yearly report is due to be released on 31st March 2012). 2012: The most turbulent year of all for Kingfisher Airlines is here. The New Year celebrations were not even over yet when on 5th January 2012 State Bank of India (largest creditor of cash str apped Kingfisher Airlines) declared Kingfisher Airlines as a non performing asset. SBIs expos ure to Kingfisher is staggering over INR 14.5 Billion. It was like a mother saying to the world that his child is useless now and nothing can be expected out from him. Things were now out of hands of the management of Kingfisher and it declared 2 000 job cuts along with longer work hours. Seemed like someone in the management assumed Ki ngfisher to be a manufacturer and not a service provider where each employee is a jewel for the f irm. For the very first time the man himself Mr. Mallya declared that the airline was in dire need of funds in order to maintain operations. And on 18th February the airline became headline of al most all newspapers when it grounded most of its aircrafts and declared that it is operating mere

28 aircrafts with curtailed schedule of 175 daily flights (Exhibit 13). The consortium of banks led by SBI also declined to further issue more debt to Kingfisher until and unless Kingfisher itself ra ises some funds through fresh equity. Now Kingfisher Airlines all accounts stand frozen by ban king agencies and export import houses due to non payment of dues. Also The International Air Transport Association (IATA) has suspended Kingfisher from its International Clearing House d ealing a fresh blow to the ailing carrier as it seeks funds to stay aloft.

What went wrong? Failed low cost model: It cannot be understood that why airlines (read Kingfisher and Jet) tried to replicate business mo dels of international LCCs (Low Cost Carriers) RyanAir or Southwest Airlines (Exhibit 14)? Is l ow cost the only way to make money? If this would have been the case then Singapore Airlines would have been bankrupt by now. It looks like that Kingfisher failed to study the models carefu lly and blindly acquired Air Deccan. The primary way any low cost carrier makes money is by o perating on non primary routes using secondary airports which reduces costs for the airlines and then the benefits are passed on to the customers unlike Kingfisher which charged low fare for Ki ngfisher Red but continued operating at prime routes including metros. Kingfisher should have a voided flying even a single aircraft to metros and should have taken advantage of hundreds of un common routes and we all know that India is under penetrated market and much advantage could have been taken by exploring newer routes. Kingfisher was a five star airliner then there was no reason to operate on two different business models at the same time. These were simply the over ambitious plans of the management of Kingfisher Airlines.

Governments Role: One of the reasons for this is the abrupt end to reforms in aviation sector. In India starting an airl ine is not at all everyones cup of tea. Ask M Thiagarajan, CEO, Paramount Airways who althou gh entered the Guinness Book of Records for being youngest chairman of a scheduled airline but his airline Paramount Airways is yet to receive an aircraft and officially a defunct airline. In Indi a every time an airliner wants to buy an aircraft, it has to seek permission of the government and everyone knows that there are numerous procedural delays by our governmental agencies. Also t here is an unusual rule that in order to fly overseas, the carrier needs to complete minimum five y ears of operations domestically. Further adding to the suffocating operational environment, the g overnment is still continuing its protectionist approach towards Air India. For example many of I ndian airports are capable of catering super jumbo Airbus A 380 aircrafts but since Air India do

nt have any of those so the government has not allowed any other private player from anywhere in the world to land A 380 for commercial in Indian territory. There was no privatization of airp orts since 2006 but even after that only handful of airports has been privatized which does not m ake much sense. The government also has differential fuel pricing (Exhibit 15) which seems very much biased towards Air India. One must understand that if Air India is Indias flag ship carrier , Kingfisher, Jet or IndiGo are not transferring their earnings to Bahamas or Dubai. Their revenue s also contribute towards Gross Domestic Product of India only and they also employ Indians an d not some aliens Competition: Competition is definitely extremely intense in the Indian aviation industry with 5 carriers fightin g one on one. We cannot say that IndiGo, SpiceJet or GoAir are new entrants in the industry. The y are almost as old as Kingfisher Airlines but what new about them is that they have restructured themselves with time but have always stayed on course with it comes down to business model. A ll of them are low cost carriers so they have not introduced business class in their aircrafts in so many years of operations. The plus point of Indias low cost carriers is that they have not compro mised when it comes down to quality and security unlike other low cost carriers around the globe . The other form of competition in Indian aviation sector is from railways. Even though we canno t say that Indian Railways is safer mode of travel, still majority of Indians travel via railways esp ecially for shorter routes. Now this makes the idea of having an airline exclusively for point to point short haul routes a waste of time and money. Where airlines can gain here is by hitting on the weakest point of railways Quality. Kingfisher Airlines was a favourite among business tra vellers hence it should have continued being a business centric airlines and even if it would have increased the prices say by ten per cent business travellers would have still travelled by Kingfish er only because they were sure of getting five star treatment along with on time departures and ar rivals. Kingfisher most probably believed that people in majority are more important that people in min ority but it forgot that there are four other players in the country serving the majority of people a nd it was the only one serving the minority and hence failed to capitalize upon its own strength a nd unique selling point (USP).

Bargaining Power of Buyers: Since Kingfisher Airlines decided to introduce Kingfisher Red it automatically entered into a pri ce war against all other carriers especially domestically. If Air Deccan was offering tickets for m eagre one rupee then naturally Kingfisher had to continue such kind of marketing campaigns. Bu t the problem was that Kingfisher almost trashed all the marketing strategies of Air Deccan think ing of reducing operational costs but here came the deviation. Airline business has extremely lon g gestation periods. For Kingfisher, Air Deccan was a totally new business so it should have cons

idered that Kingfisher Red will take some years to completely reap benefits of being a low cost c arrier but Kingfisher believed that Air Deccan has been in the market much before Kingfisher Ai rlines so it should bring Kingfisher Airlines financial statements into green very soon. The busin ess fliers which were earlier loyal to Kingfisher Airlines used all their frequent flier miles, bough t free tickets, gave the same to their family to enjoy and they never returned back to Kingfisher. For them Kingfisher Airlines became a compromised airliner and they started going back to Jet Airways which also is cash strapped but has a sustainable business model. As soon as Kingfisher realised that they had committed a mistake by changing model of Air Deccan, it in a haphazard way increased prices of Kingfisher Red and brought the same on par with other airlines. At this p oint of time Kingfisher Red had become a lost opportunity and even the management was confus ed if it would call it a normal carrier or a low cost one. Finally in February 2012 the brand Kingfi sher Red was officially declared non functional, marked one of the biggest examples of failed c onsolidation and became a land mark failure in terms of merger and acquisitions.

Aircrafts: Aircrafts are the most important assets of any airliner. Choosing and inducting the same requires major decision making skills. Kingfisher Airlines started with an Airbus A 320 aircraft and we nt on using aircrafts on the same line. Now the business model of Kingfisher Airlines is such that it does not have any aircraft of its own. All the aircrafts of Kingfisher Airlines are dry leased. Dr y leased means that the lessor (who actually owns the aircraft) gives the aircraft to the lessee (Ki ngfisher in this case) for a period of minimum two years without insurance, crew, ground staff, s upporting equipment, maintenance, etc. The problem here is that aircrafts instead of being fixed assets for the airlines becomes an operational asset and plays a crucial role in cash flow calculati ons. Kingfishers dues kept on piling up and it is goodwill of United Breweries group that the les sors allowed the same. The amount has piled up way so much that lessors have filed suits against Kingfisher Airlines acr oss globe and has forced Kingfisher to ground majority of aircrafts. Another issue with Kingfishe r Airways is that it has itself created confusion for itself. Since it does not buy aircrafts, it cannot command any bargaining power over Boeing or Airbus but it can abstain from duplicity of tasks. Kingfisher Airlines operates both Airbus and ATRs. This is absolutely an unwanted headache ca used due to managements poor decision making skills. Kingfisher requires double personnel just because of the fact that it operates aircrafts of two different makes. If it would have relied only o n Airbus then it could have easily reduced its operational costs. When Kingfisher Airlines knew t hat it is entering market for a long term then instead of wasting cash on acquiring Deccan Aviati on, it should have bought planes from Airbus or Boeing. Kingfisher wasted millions on ordering A 380 jumbo aircrafts. It knew that government would not provide permit to fly the same any ti me soon. Majority of carriers around the globe which ordered A 380s such as Emirates, Qantas etc. are having profits on their books, have almost non significant competition domestically and

they operate at an extremely large scale around the globe unlike Kingfisher Airlines for which n either the competition is low nor it used to operate at such a huge scale. Just to prove your superi ority over other domestic carriers or to show how powerful you can be, it is pretty much wasteful first mover loss instead of first mover advantage

The Future: Kingfisher Airlines is unofficially bankrupt and officially out of funds. The difference between t wo statements? Kingfisher Airlines is operating without any cash. The bank accounts are frozen and customers a re not willing to fly with the carrier. The steps Kingfisher Airlines must take now 1. With accumulated losses of Rs.6,524 crores, outstanding loans of Rs.7,057 crores, overdu e to tax authorities, airports and fuel suppliers, and less than half of its fleet flying, Kingfi sher does not present a pretty picture for any airline company. If Kingfisher Airlines want s to fly then the promoters need to induce few thousand millions. With that money they s hould first clear due of oil companies, IATA and other regulatory authorities otherwise K ingfisher would fly into sunset 2. Kingfisher Airlines definitely needs to raise fresh capital as well. Banks did give Kingfish er one last chance last year by infusing capital which was on request converted into share s but due to landslide fall in share price of Kingfisher Airlines, the investments of Banks have almost eroded. Consortium of banks in any case will not pour good money after bad . The promoters need to give personal guarantees in order to raise funds. 3. Even if there are some suicidal investors who are interested to invest in Kingfisher Airlin es, they would be looking forward to restructuring of the airline. So promoters and board of Kingfisher Airlines must restructure the entire business model of the airline before the y approach for investors. They must make the fundamentals of the airline very clear and i nstead of gifting free Kingfisher Calendar with an investors presentation, Kingfisher Airl ines must give an assurity report to investors explaining how the airline can capture the lo st market share 4. The pilots and staff of Kingfisher Airlines are unpaid since several months. Indirectly the safety seems compromised here. The issue of unpaid salaries must been getting discussed in the cockpits as well and the quality pilots would have joined rivals. Kingfisher Airline s must clear their dues as well or at least assure them of enough funds which would not p ut any financial pressure on families of pilots and staff otherwise sooner or later Kingfish er would become a serious victim a major air mishap forcing it to shut down operations.

5. Kingfisher Airlines should cut down on its fleet and cancel all the orders it has given for new aircrafts. Cutting down the fleet means that it would owe fewer amounts to lessors w hich would in turn mean better cash flows. Also Kingfisher is bound to cancel order for n ew planes. It cannot operate on existing routes so how it can operate on newer routes? Ins tead of operating on heavy charging metro airports, Kingfisher must focus on secondary c ities which primarily have smaller airports. No one can say that such airports do not have much passenger traffic, but most would believe that such airports do not charge hefty cha rges lifting up some operational cost pressure from Kingfisher Airlines and this would als o help Kingfisher to lure investors. 6. The government also needs to help cash strapped airliner. The most it can easily do is for cing oil companies to provide tax free aviation fuel to Kingfisher for the time being. Also government along with Reserve Bank of India can guide the banks to release the account s of Kingfisher for a certain guaranteed period of time till which Kingfisher can assure of a proper restructuring plan. 7. Rahul Bajaj has very well said that if the bailout is given to Kingfisher Airlines then it wi ll be "privatisation of profits and socialisation of losses". Hence some really punishable st eps must be taken by banks instead of acting soft on Kingfisher Airlines. They must conv ert the entire debt into equity. This way they will recover a part of their investments. Also since banks are major stakeholders of Kingfisher Airlines, they must act tough and force the flamboyant namesake promoter to exit Kingfisher Airlines and some responsible back ed by banks person must be given the responsibility of being the Managing Director of th e airline in the last bid to turn around the airliner.

No wonder that once Indias number airline is on the brink of complete shutdown, Kingfi sher Airlines was started with a very basic motto providing high quality and luxurious a ir travel. It has to live up to the same motto and the only way to do so is to reinvent itself and new skies await the never ending journey of Kingfisher Airlines.